Greek tax system needs a total overhaul if evasion is to be curbed
Your newspaper’s excellent commentary «A crime without punishment» on tax evasion (June 13) correctly points out that this is a national sport played by almost everyone except for those on fixed wages and pensions. These individuals are the game’s losers and although it is an immutable fact of nature that someone must always play this role, the Greek tax game is distinct in the ferocity with which it devours its losers. We need to consider that the Greek state, in contrast to rest of the core 15 EU states, relies heavily on indirect taxation such as VAT and excise taxes (on cigarettes and alcohol) for its revenues. It is forced to do so because unlike other EU countries, the share it collects from personal income tax is significantly lower. According to a 2005 EU report, in Greece the amount of personal income tax collected expressed as a percentage of GDP amounts to just 4.9 percent as opposed to a substantially higher EU average of 8.5 percent. Greek indirect taxation on the other hand accounts for some 14.4 percent of GDP, almost three times the amount of personal income tax. In comparison to specific countries, Greece appears to be a tax paradise especially when we look at the so-called free market economy of Anglo-Saxon countries such as Britain and Ireland, where personal income tax accounts for 10.4 percent and 7 percent of GDP respectively. There is a cost to be paid however for the country’s pretensions to tax paradise status. While the collection of indirect taxes may be a good thing for the tax authorities, since it is much easier to collect VAT, for example, the fact remains that such taxes disproportionately affect those with lower incomes. This is because these families spend a greater proportion of their incomes on consumption and thus end up spending a greater proportion of their income on indirect taxation when compared to high-income families. This consumption, it is worth pointing out, is mostly attributed to expenditures not on luxuries but on such basic necessities such as food, clothing and utility bills. To make matters worse, the inability to collect income tax also means that public services such as education and public health cannot be properly funded, something which once again has a disproportionate impact on those who are unable to pay for private services. The manifest unfairness of a tax system that cannot distinguish between a rich person’s ability to pay and a poor person’s is obvious. The Greek system, as your article pointed out, goes well beyond this. Apart from its proclivity to abuse, it is also notable for the types of income that it either does not tax or that it taxes lightly. These include capital gains both generally but also specifically from the sale of shares, mutual funds and derivatives, income from dividends and from interest (another great success story considering the fall in the Greek savings rates despite reductions in its taxation). Although the favorable tax treatment of these investments can be enjoyed by everyone, in practice one does not find many low-income families or those on fixed incomes with large stock market portfolios or with large savings. The criminalization of tax evasion is a good first step. However, in order for Greece to strive toward a fair and just tax system, nothing less than a complete overhaul of the current system is called for. CONSTANTINE NEZIS, Pangrati, Athens.